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Agricultural Derivatives
The deregulation of the agricultural market in South Africa led to the establishment of a viable futures market. In early 1995 the Safex Agricultural Markets Division (AMD), with a start-up capital of R 4.2 million, listed its first commodity on the exchange- a physical settled beef contract. This was shortly followed with a potato contract.  A limited number of 84 seats were issued. The new Marketing of Agricultural Products Act in South Africa has created an environment in which farmers, traders and processors are able to react positively to transparent prices which are market related. Agricultural futures and options are essentially a means of spreading risk and a source of obtaining price insurance.
Although the physically settled beef contract and the potato contract were discontinued due to inactivity, the white and yellow maize contracts listed in 1996 resulted in an enormous growth in the volumes that have traded on the exchange. The maize industry in South Africa has benefited from the transparent prices generated in the futures market. Wheat has traded since November 1997 allowing this industry the opportunity to manage their price risk. A sunflower seeds contract was introduced in early 1999. The introduction of options contracts on all the above, has further advanced price risk management for all market participants.
South African producers have experienced a steep learning curve with regard to marketing their produce in a free market. The Safex Agricultural Products Division continues to actively market the use of the exchange through presentations directly to interested parties and the placement of advertisements to increase the exposure of the APD in the agricultural sector.
Growth continues to be most encouraging as the exchange trades on average 200 000 tons of maize a day and options on these are increasing daily. Over 1.8 million contracts have traded since 1995 with the bulk of the trades arising from the white maize contract. The percentage physical deliveries are on the decline, thereby indicating that the market is using the futures exchange as a hedging facility and not as a pure delivery mechanism. The use of the transferable Safex silo receipt has added to the efficient trading of the commodities to such a degree that many of the financial institutions have begun accepting it as collateral. As the market grows it will attract the interest of more and more banks, and others outside the agricultural sector.
The Safex Agricultural Products Division continues to provide the entire Southern Africa with a highly cost efficient trading system where price risk can be managed to the optimal. The free market has created the correct environment for farmers and processors to use price risk management policies in their everyday management of their business.
On 6 August 2001, the JSE acquired the business and assets of the South African Futures Exchange (SAFEX). SAFEX is now incorporated into the JSE in two divisions, namely the Financial Derivatives Division, which covers the equity and interest-rate futures and options markets; and the Agricultural Products Division (APD), which covers commodities futures and options on maize, sunflowers, soya beans and wheat.
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